The Economic Nationalists Are Wrong: Free Trade Means Freedom and Prosperity
Recently, I had the pleasure of attending a debate about the morality of capitalism between James Otteson and Michael Anton, a defender of economic nationalism. Otteson made a good case for capitalism; however, Anton derailed the debate by choosing to focus on specific policies rather than ethical concerns. Ironically, Anton admits that he has hardly ever picked up an economics textbook.
Throughout the debate, Anton made claims that were either misleading or false. I will address the most egregious here.
Tariffs and Free Trade
Anton’s foremost claim is that tariffs are, in fact, beneficial for economic development. Without giving much evidence, he merely appeals to the authority of Alexander Hamilton and the infant industry argument. Perhaps his ignorance of economics stunts his understanding of this issue. What is the actual impact of a tariff on economic development? Contrary to Anton’s claims, tariffs initially impact the savings-investment ratio. In regard to income taxes, Murray Rothbard states in his book Man, Economy, and State with Power and Market,
For the taxpayer’s real income and the value of his monetary assets have been lowered. The lower the level of a man’s real monetary assets, the higher will his time-preference rate be (given his time preference schedule) and the higher the proportion of consumption to investment spending.
The same applies to tariffs. Tariffs generally increase the consumption to savings ratio by increasing prices of domestic and foreign wares, which is contrary to what Austrians hold as the cause of economic development. According to Jesús Huerta de Soto, decreases in social time preferences lead to increased savings which modifies the “structure of productive stages, making this structure more complex and lasting, and in the long run, appreciably more productive.” Increasing the consumption to savings ratio leads to an increase in social time preferences, thereby causing economic regression, not progress.
Additionally, tariffs will also decrease total consumption of tariffed goods, lowering the general welfare. When pressed during the Q and A session at the dinner after the debate, Anton maintained that tariffs will not deter people from consuming goods. He uses evidence that people still use goods that are tariffed, such as Italian cars.
This is absurd and violates methodological singularism. People consume definite quantities, not classes, of goods. The marginal consumer is eliminated and made worse off. Moreover, just because a person is not deterred from consuming a good at a higher price does not mean that their welfare remains the same. They will have less money to distribute between consumption, saving, and investment, which harms their welfare.
Furthermore, tariffs contribute to the creation of monopolies, protecting companies from competition and therefore leading to higher prices and lower quality of goods, the characteristics that make almost everyone—except for Anton, apparently—opposed to monopolies.
Lastly, Anton commits the notorious fallacy of the broken window. If there is no visible effect, there is no problem for Anton. However, the vast production that would have occurred if not for the stunting effect of tariffs is immeasurably high.
Anton is wrong. Tariffs are generally harmful and do not increase economic progress.
NAFTA and Free Trade Agreements
Anton maintains the North American Free Trade Agreement (NAFTA) and other “free trade” agreements as free market canon. He says he was with the Cato Institute in supporting NAFTA, but he looks back to those days with regret. Cato was wrong, and free trade is harmful according to Anton.
If one were to look back at Cato publications from the Clinton administration, Cato was not monolithic. Some expressed excitement, others expressed caution, but Cato is not representative of the orthodox libertarian position. If one wants a sounder position, they can look at Rothbard’s publications from the time rejecting NAFTA and other “free trade” agreements as command-and-control agreements, not free trade.
The truth is that NAFTA is not the kind of free trade that libertarians want. Unilateral free trade is the only libertarian path forward; any other path opens up the door for cronyism and interventions in an attempt to make the agreement palatable for businesses and foreign interests.
When all else fails, appeal to authority. Anton did just that in citing Hamilton’s Report on Manufactures, which posits an early version of the infant industry argument. Protecting “infant industries” merely prevents innovation, keeping them “underdeveloped,” defeating the purpose of the protections in the first place. There is no good reason to take the infant industries argument seriously.
The preceding economic analysis along with Rothbard’s refutation of the infant industry argument make the tariff position untenable, but there is something else fundamentally wrong here—Hamilton’s motives.
Anton maintains that Hamilton was promoting the policies he did for the common good, but this is a naïve interpretation of history. The self-interest-centered public choice school of economics displaced common-good public policy. We can understand Hamilton’s policies from the self-interest framework. Hamilton was deeply connected with the Robert Morris group, an entourage of political elite including James Wilson, John Adams, and Gouverneur Morris.
When I pressed Anton further in the private, postdebate question and answer session, he gave evidence that Hamilton was a “hard worker” in response to my claims. Yes, if political power was at stake, I would be a hard worker as well. The truth is that Hamilton was power hungry and deceptive. He did all that he could to stay in power and increase the size of the government in spite of liberty and welfare. Being a hard worker says nothing about Hamilton’s character. More can be read about Hamilton in Rothbard’s Conceived in Liberty, Patrick Newman’s Cronyism, and Brion McClanahan’s How Alexander Hamilton Screwed Up America.
Talk of cronyism makes me question Anton’s interests. What does he have at stake? Looking at Anton’s statements of financial interest from 2018, one can see that he still had investments with Blackrock, one of his former employers. Blackrock is a supporter of government interventions, especially when it comes to the environment. Why? Because they promote government intervention that serves their own interests. Nothing definitive can be said; Anton may very well be a true believer, but that does not change the fact that his arguments were chock-full of errors.
Economic nationalism is nothing new. Its claims have been repeated for centuries. Unfortunately, as demonstrated by Anton, economic nationalism isn’t going anywhere, so we must rebuke it whenever it rears its ugly head.